The challenges constraining Africa’s economy from competing with its global peers is still higher than the opportunities in the continent, stakeholders from the Sub-Sahara region said at the United Capital Pan-African e-Conference on Friday.
For the continent with the youngest population in the world to maximize it potential and become a world economy like the US and China, the stakeholders said it would have to look inward for a local solution to solve its local problems.
“The socio-economic impacts of the globally devastating COVID-19 has exposed the vulnerabilities of the region as it continues to grapple with infrastructure development challenges ” Peter Ashade, Group CEO, United Capital Plc said during a panel session titled: Fostering Innovative Cross-Border Financing Solutions in Africa.
While issues like infrastructure, bad governance, lack of access to growth capital, policy inconsistencies, high inflation rate and multiples currencies were cited as the giant in the room, the panellist outlined the following solution as the catalysts needed for growth and development.
Intra-Africa trade
While the share of intra-African exports as a percentage of total African exports has increased from about 10 percent some two decades ago to about 18 percent in 2018, it remains low compared to the 70 percent in Europe, Asia (59 percent), and North America (31 percent).
“We need to adopt regional trade as a strategy to penetrate the African market; and if we have Pan African banks following this path, we will definitely proffer solutions within Africa,” Gbenga Makinde, CEO UBA, Benin said.
With the low intra-African trade levels, the stakeholders were optimistic it is an important reason to expect that trade will be a key driver of growth in Africa.
According to the Economic Commission for Africa (ECA), the AfCFTA is projected to increase the value of inter-African exports. It is projected to increase the value of intra-African trade by between 15 percent (or $50 billion) and 25 percent (or $70 billion), depending on liberalization efforts, in 2040, compared to a situation with no AfCFTA in place.
Single currency
The use of a single currency in Africa is seen as a catalyst that can fasten the economic growth rate of the continent that is projected to shrink by 5 percent in 2020amid the impact of COVID-19.
“Different currencies within Africa is a barrier and it is one critical thing we need to look at; I should be able to trade in Nigeria with one currency because it is just one hour away, “Yofi Grant, CEO, Investment Promotional Commission, Ghana said.
Meanwhile, the Economic Community of West African States (ECOWAS) approved for the region to adopt the ECO (ECOWAS single currency) from January 2020, however, the inability of member states to meet the requirements for the currency implementation remains a threat to achieving the currency dream.
More than two decades after the idea of a single West African currency was hatched, issues including the lack of needed legal framework and achieving criteria like a budget deficit of not more than 3 percent remain an obstacle.
“Within Africa, we have 54 countries using 40 different currencies. We have more inflows from remittances than from capital market activities. For that reason, we have to get our act together,” Wale Shonibare, Director, Africa Development Bank (AfDB) said.
Low inflation rate
If Africa can achieve a low inflation rate, the stakeholders said, the continent will be a mile close to achieving it desired economic growth as high cost of living remains a major constraint to the region’s economic success.
“The biggest constraint to capital formation in Africa in my view is inflation. If we want to achieve the best possible results if we want to achieve good capital formation we need to remove inflation,” Fola Fagbule; Senior Vice President, Africa Finance Corporation (AFC) said
Meanwhile, single-digit inflation of 5 percent or less is one of the criteria required to adopt a single currency.
But, the cost of living in Nigeria and many other Africa country has been on an upward spray, a challenge to achieving the single currency goal.
Inflation rate in the continent’s largest economy has risen steadily. Annual inflation in Nigeria rose for the ninth straight month in May, to a two-year high of 12.4 percent.
Good governance/ Policies consistency
According to the panellists, bad governance in Africa is an issue that is a barrier to growth and if that can be eliminated then the continent will have a more vibrant businesses environment.
“Our politics plays quite a big role in how we do our business. But the biggest ideological difference that needs to take place is mental. We should exercise our minds away from the idea of cheap funding,” Grant said while addressing Africa’s high debt profile.
The government needs to provide the enabling environment for businesses, it is not a competition between government and private sector, they need to make sure that private sector survives and thrive otherwise the economy doesn’t grow, the panellists said.
Incentive for small businesses/Data
For a more inclusive and better economy for Africa and African businesses, there is need for countries in Africa to give incentive to not just foreign businesses but most importantly the local businesses, according to the experts at the United Capital’s e-conference.
“We should ensure that we incentivize our local businesses. Secondly, we should look at credit ratings. When we start rating our small businesses and forcing them to do things right to access funding then we can start seeing changes,” Grant said, adding that the continent should take its data very serious because the “ currency of the world’s future is data.”
